Determinants of Vacation Leave and Relations to Work Hours and Wages in Canadian Establishments

Abstract

Using a nationally representative sample of employees and workplaces from Statistics Canadaís Workplace Employee Survey (WES) 1999-2005, we provide new evidence on the determinants of vacation leave and its relationship to hours worked and hourly wages. Although paid vacation leave is an important factor in explaining variations in the gross domestic product (GDP) per capita as it has an impact on the number of annual hours worked, the literature has rarely focused on it. Previous studies have revealed that annual hours of work fall by 45 hours for each additional week of vacation used, i.e. by more than one week of full-time work. Correcting for bias due to the fact that workers revealed di§erent preferences in the use of vacation and that workplaces may have di§erent leave policies, we Önd that annual hours of work fall by only 29 hours. Our results imply that reporting an extra week of vacation used translates less than one for one into a reduction in weeks worked. That is, failure to correct for unobserved e§ects leads to an overestimate by approximately 55% of the impact of paid vacation on hours worked. Our Öndings support the hypothesis that pressure at work may lead many employees to use vacation days more, but also causes them to work longer hours.